Tesco Interim

Results 2021/22.

Ken Murphy, Chief Executive Officer

Imran Nawaz, Chief Financial Officer

6 October 2021
Agenda.

01. Introduction

02. Financial performance

Strategic priorities and
03.
performance framework
04. Q&A
1
12 months of progress.
Growing UK market Driving digital platform Continued leadership
share forward in ESG
Improved customer Added £2.8bn annual online Launched new Group Health
satisfaction across all areas sales & Climate commitments
Strongest price position1 for Gained 700,000 online Removed 1 billion items of
five years customers plastic packaging
Expanded Aldi Price Match to Doubled the proportion of Launched soft plastic
c.650 products Click & Collect recycling in all large stores
Rolled Clubcard Prices out to Increased Clubcard to >20m Launched UK’s biggest
all stores households electric car charging network
Gained customer missions2 More than doubled regular Donating 3m meals via ‘Buy
from competitors each period app users to 6.6m One to Help a Child’ campaign

1. Shelf price index vs Aldi, Lidl, Sainsbury’s, Morrisons and Asda; the index is weighted by sales and market share to reflect2customer importance and competitor size
2. Kantar switching gains 12 w/e for the last 12 periods
Increased customer satisfaction.
Brand
Customer Easy Shopping Trip Total Business YoY NPS2 18
shopping
metrics1
Ease of shop 86.7% +4.8% 11
13

Clean and tidy 88.3% +0.8%

Get what I want 79.7% +1.9%

Prices are good 74.9% +4.9% Q2 19/20 Q2 20/21 Q2 21/22

I don’t queue 83.4% +3.0%

Colleagues
are helpful 83.9% +1.0%

1. UK Multichannel Tracker. Total UK Business %s represent 3 period rolled data to P6 2021/22. 3

2. BASIS Global Brand Tracker. Chart represents responses to the question: ”How likely is it that you would recommend the following company to a friend or colleague?”
Market share gains. Gaining from
all key
competitors2
Switching gains

Market
YoY market share share Asda
gains1
0.8%
Morrisons

0.6% Aldi

0.4% Lidl

Sainsbury's
0.2%

£0m £10m £20m £30m £40m £50m £60m

0.0%
Mar
M Apr
A May
M Jun
J Jul
J Aug
A

1. Kantar Total Tesco year-on-year market share gains of Grocers Total Till Roll on 12 week rolling basis.
2. Kantar switching gains 12 w/e 5 September 2021. 4
Creating value for shareholders.

Strategic priorities set out

Multi-year performance framework in place
− Driving growth
− Generating £1.4bn - £1.8bn retail free cash flow per year
Capital allocation refreshed
£500m buyback announced

5
H1 Results.

Imran Nawaz
 Introduction.

Joined a brilliant business

Refreshed capital allocation framework

Announced ongoing share buyback programme

Driving transparency and simplicity in all we do

7
Group performance.
Sales1 Group profit2 Retail free cash flow3

+3.0% £1,458m £1,543m

+10.0% vs. 19/20 +41.0% vs. last year +£0.7bn vs. last year

Dividend EPS4 Net debt

3.20p 11.22p down £1.7bn

in line with last year +54.0% vs. last year

1. Sales exclude VAT and fuel. Sales change shown at constant rates.
2. Operating profit before exceptional items and amortisation of acquired intangibles. Change shown at constant rates.
3. We have amended the definition of our retail free cash flow APM in order to provide a more consistent and predictable view of free cash flow generated by the core retail operation. It now excludes cash flows from
business acquisitions and disposals, investments in joint ventures and associates, cash flows from the sale or buyback 8 of property, and other exceptional cash flows.
4. The share base used in adjusted diluted EPS in the prior year is restated to capture the full impact of the share consolidation which followed the sale of our businesses in Thailand and Malaysia, as if it took place at
the start of the 2020/21 financial year. As such, this metric is presented on a basis other than in accordance with IAS33.
Segmental performance.
Adjusted
Change at One-year Two-year Change at
Sales operating Margin
constant rates LFL LFL1 constant rates
profit2

UK & ROI £24,993m 2.9% 2.4% 9.1% £1,318m 16.5% 4.7%

Central Europe £1,905m 2.6% 1.4% 0.3% £68m 18.6% 3.4%

Total Retail £26,898m 2.9% 2.3% 8.4% £1,386m 16.6% 4.6%

Bank £433m 12.2% - - £72m 146.5% 16.6%

Group £27,331m 3.0% 2.3% 8.4% £1,458m 41.0% 4.8%

1. Two-year LFL sales growth is calculated by comparing current year sales to sales in 2019/20, including sales from those stores which were trading in both years.
2. Operating profit before exceptional items and amortisation of acquired intangibles.
9
UK & ROI sales.
UK1 H1 LFL: ROI H1 LFL: Booker H1 LFL:
1-yr 1.2% 1-yr (2.6)% 1-yr 11.0%
2-yr 8.9% 2-yr 12.2% 2-yr 9.1%

£bn 10.2 £m £bn

10.0
9.9 9.9 2.1
9.7
9.6 1.9
697 662 694 1.7 1.8
624 641 604 1.6
1.5

LFL Q1 Q2 Q3 Q4 Q1 Q2 LFL Q1 Q2 Q3 Q4 Q1 Q2 LFL Q1 Q2 Q3 Q4 Q1 Q2

1-yr 8.7% 6.4% 6.7% 8.8% 0.5% 2.0% 1-yr 20.5% 10.6% 11.8% 13.3% (6.1)% 1.2% 1-yr 0.6% 3.7% 0.1% (8.3)% 9.2% 12.5%

2-yr 9.0% 5.3% 6.6% 8.7% 9.3% 8.5% 2-yr 21.2% 9.0% 12.6% 16.1% 13.0% 11.4% 2-yr 3.7% 5.7% 5.1% (5.0)% 3.1% 14.8%

2020/21 2021/22

1. UK includes Tesco UK retail business, One Stop and dunnhumby. 10

UK sales.
One-year like-for-like sales by channel

Large Online Convenience

+2.9% +2.3% (5.0)%
6.9% 22.2%

(1.7)%

(0.7)%

(8.2)%
(13.5)%
Q1 Q2 Q1 Q2 Q1 Q2

Strong large store growth Q2 online performance reflects Strengthening sales reflects
in Q2 capacity ramp-up last year improved ‘city centre’ stores

11
UK sales.
One-year like-for-like sales by category

General
Food Clothing
(0.7)% Food merchandise
+43.6%
0.7%
+4.6%
10.3% 52.1%

35.9%

(2.1)%
(0.8)%
Q1 Q2 Q1 Q2 Q1 Q2

Food growing in Q2 with High contribution from Very strong clothing sales as
stockpiling impact in Q1 last year general merchandise in Q1 customers reappraise offer

12
ROI. One-year Two-year
LFL LFL

Total (2.6)% 12.2%

Stores (3.8)% 8.9%

Channel
Exceptional growth on a two-year basis
across all categories and channels
Online 10.8% 74.8%
One-year performance reflects
particularly high impact of stockpiling LY
Food (3.4)% 12.1%
Clear market leader in online

Category
- Grown market share GM (5.4)% 17.4%
- Increased geographic coverage
- Expanded Click & Collect from 28 to 36 stores Clothing 11.5% 11.3%

13
Booker. Retail two-year LFL
26.9%

18.9% 19.7%
16.7% 17.6%
15.2%

Sales 1-yr LFL 2-yr LFL

Total £3,865m 11.0% 9.1%

Mar
M Apr
A May
M Jun
J Jul
J Aug
A
Retail £2,392m (2.8)% 19.4%
Catering two-year LFL
Catering £1,352m 54.4% (11.6)%
13.5%
Mar
M Apr
A May
M 2.4% 2.3%
Booker Catering £802m 37.5% (11.6)%
Jun
J Jul
J Aug
A
(11.1)%
Best Food Logistics £550m 89.3% n/a
(27.9)%

(49.6)%

Note: Total Booker sales also include small business sales of £121m. 14
Central Europe. One-year Two-year
LFL LFL

Total 1.4% 0.3%

One-year LFL sales growth +1.4%
Stores 0.7% (1.1)%

Channel
- Strong Hungary and Slovakia performance
- Non-food restrictions impacting Czech Online 24.7% 118.0%
Republic in Q1

All markets growing in Q2 as customers

returned to large stores Food (0.9)% (0.5)%

Category
Market-leading online positions in GM 8.2% 5.8%
Slovakia and Hungary
Clothing 24.0% 13.2%

15
Retail operating profit.

UK & ROI CE Retail

Adjusted
£1,318m £68m £1,386m
operating profit

Change1 % 16.5% 18.6% 16.6%

Margin (%) 4.7% 3.4% 4.6%

+£194m increase year-on-year

20/21 H1 retail 21/22 H1 retail

adjusted operating UK & ROI Central Europe adjusted operating
profit profit

1. Change shown at constant rates. 16

Retail operating profit – UK & ROI.

Central Europe

UK & ROI
Profit +16.5%1 on 1-yr
basis reflects
- Sustained sales growth
- Lower COVID-19 costs
(LY £(533)m, TY £(122)m)
- Stronger non-food margin mix
- Operating efficiencies
offsetting inflationary
headwinds
- Prior year includes £249m
business rates relief
20/21 H1 retail adjusted 21/22 H1 retail adjusted
operating profit operating profit

1. Change shown at constant rates. 17

Retail operating profit – Central Europe.

Central Europe

UK & ROI Profit +18.6%1 on 1-yr

basis reflects
- Higher sales
- Lower COVID-19 costs
- Higher mall income
- Partially offset by Hungary
retail sales tax

20/21 H1 retail adjusted 21/22 H1 retail adjusted

operating profit operating profit

1. Change shown at constant rates. 18

Tesco Bank.
H1 21/22 H1 20/21
Return to profitability
Operating profit £72m £(155)m
- Prior year reflects COVID-19 impact on
provision for potential bad debts
- Includes Tesco Underwriting contribution Net interest margin 5.1% 4.6%
Balance sheet remains strong Cost : income ratio 71.3% 67.9%
New products and services for Tier 1 capital ratio 23.9% 21.6%
customers, inc. Clubcard Pay+ and
travel insurance re-launch Bad debt coverage ratio 8.3% 8.2%

19
Statutory profit after tax.
H1 21/22 H1 20/21 Change %

Adjusted operating profit £1,458m £1,037m 40.6%

Exceptional items & amortisation of This year’s number includes £(193)m of historic
£(154)m £(30)m
acquired intangibles shareholder litigation claims

Net finance costs £(158)m £(469)m

Net finance costs before FV Actively managing our debt portfolio enabling us to
£(338)m £(361)m
remeasurements achieve lower rates of interest
Fair value remeasurement credit this year vs. debit last
FV remeasurements £180m £(108)m
year, in relation to inflation linked swaps

YoY change driven by acquisition of partner’s stake in

Joint ventures and associates £(3)m £13m
Tesco Underwriting in May 2021

Reflects higher operating profit and deferred tax

Group tax £(313)m £(154)m
revaluation due to corporation tax change

Statutory profit after tax £830m £397m 109.1%

20
Retail free cash flow.
H1 21/22
Retail cash generated from
£2,183m
operations exc. working capital
Underlying working capital benefit c.£156m Working capital inflow driven by significant recovery in fuel & Booker catering sales

Working capital phasing benefit c.£400m Expected unwind in second half

Retail operating cash flow £2,739m

Cash capex (exc. buybacks) £(495)m Cash capex on track for full year guidance

Net interest £(314)m Comprises lease interest of £(207)m and £(107)m interest on debt

Cash tax paid reflects ongoing benefit from one-off pension contribution in prior year,
Tax paid £(49)m
utilisation of prior year losses and super-deduction on capital investments

Dividends £3m Dividends received from UK property joint ventures

Market purchase of shares (net of
£(55)m Purchase of own shares to offset dilution from colleague awards
proceeds)
Repayments of obligations under leases £(286)m Settlement of capital element of lease liabilities

Simplified definition of retail free cash flow – better reflecting operational

Retail free cash flow £1,543m
cash performance

21
Retail free cash flow year-on-year.
c.£400m £1,543m

£150m £1,143m
£76m £32m
£228m £(14)m
£(126)m
£797m

+£346m increase year-on-year

20/21 H1 Cash profit1 Pension Underlying Capex Cash tax Other 21/22 H1 Retail Working capital 21/22 H1
Retail free contribution working capital free cash flow phasing benefit TY Retail free
cash flow movement pre working cash flow
capital phasing
benefit
1. Cash profit is defined as retail adjusted operating profit excluding the impact of depreciation & amortisation and other reconciling items.
22
Other cash items.
H1 21/22 H1 20/21

Retail free cash flow £1,543m £797m

Proceeds from sale of Polish business to Salling Group A/S in

Acquisitions & disposals £117m £0m
March

Property inflow includes disposals primarily in Poland net of

Property proceeds & purchases £72m £(116)m
one store buyback

Exceptional cash items include historic shareholder litigation

Exceptional cash items £(107)m £(127)m
settlements

Retail free cash flow after

acquisitions, property & £1,625m £554m
exceptionals

23
Capital allocation.
Principles Parameters
Reinvest in business and customer Capex within range of £0.9bn to
1 offer => £1.2bn per year

Maintain a solid investment grade Target/maintain leverage at c.2.8-2.3

2 balance sheet => times Net debt1/EBITDA

Target a pay-out ratio of c.50% of

3 Pay a progressive dividend => earnings

Consider inorganic growth Include property buybacks where

4 opportunities that may arise => economically viable

Likely to be in the form of share

5 Return surplus cash to shareholders => buybacks

1. Net debt is inclusive of IFRS 16 lease obligations.

24
Balance sheet metrics.
Total indebtedness1 Net debt2 Fixed charge cover3

3.6x 3.6x
3.1x 3.1x
3.3x
3.1x
2.8x 2.9x 3.1x
£13.0bn 2.7x
£1.0bn £12.0bn
£10.7bn £1,239m £1,227m
£0.5bn £10.2bn
£234m £250m
£8.5bn £8.5bn
£8.2bn £8.2bn
£1,005m £977m

£3.4bn £3.4bn
£2.0bn £2.0bn
12 months to
FY 20/21 1H
H1 21/22
21/22 FY 20/21 1H 21/22
H1 FY 20/21 1H 21/22
Aug 2021
Underlying net debt Lease liabilities Underlying net debt Lease liabilities Lease liability payments Net finance costs
Pension deficit

1. Total indebtedness post-IFRS 16 comprises net debt (inc. lease liabilities) plus the IAS 19 deficit in the pension schemes (net of tax) for both continuing and discontinued operations.
2. Net debt is inclusive of IFRS 16 lease obligations.
3. Fixed charge comprises net finance costs excluding net pension finance cost, exceptional items, capitalised interest,25 fair value remeasurements of financial instruments and finance charges payable on lease liabilities
plus retail total lease liability payments.
Guidance.
Retail profit Now expecting to deliver between £2.5bn - £2.6bn in FY 21/22

Bank profit Expect profitability of at least £120m in FY 21/22

Capex £0.9bn-£1.2bn per annum

Net finance costs c.3.5% of long-term debt p.a.

Leverage ratio Targeting c.2.8 – 2.3 times Net debt1/EBITDA

Tax Effective tax rate c.23% for FY 21/22; 26% - 27% over medium term

Progressive (broadly targeting c.50% of earnings)

Dividend
Interim dividend 35% of prior year full year dividend
Ongoing programme, with the first tranche of £500m in shares to be repurchased
Share buyback
by no later than October 2022

1. Net debt is inclusive of IFRS 16 lease obligations.

26
Strategic
priorities &
performance
framework.
Ken Murphy, CEO
Our strategic priorities.

Magnetic I love my Easily the Save to

value for Tesco most invest
customers Clubcard convenient

Re-defining value to become Increase loyalty and access Incremental, capital

A cost efficient retailer
the customer’s favourite new sources of revenue light growth

28
Magnetic value for customers.

Price Quality Re-define value Health and

Sustainability
innovation
to become the
customer’s
Fully remove
price as reason
Improve quality
perception of
favourite Innovate with our
supplier partners,
Work hard to
reduce our
for customers to product offering – making healthy environmental
want or need to particularly in food available and impact
shop elsewhere fresh food affordable for all

29
Great prices. High quality.
c.650 c.1,600 2,742 New Finest* Quality
products products stores ranges innovation promise

Continuing investment in value proposition Led by a high quality fresh offer

Maintaining overall competitiveness Renewed focus on premium products

Sustaining promotions at lower levels Innovating at pace with supplier partners

Committed to removing price as reason to Protecting quality from farm to fork
shop elsewhere

30
Leading on health and sustainability.
530m more fruit & Plant Chef (12)% Reuse launched Soft plastic recycling
veg portions sold price reduction1 in 10 stores in all large stores

Launched health commitments across Ambitious net zero goals across own
UK&ROI, Central Europe & Booker operations (2035) & entire value chain (2050)
Removing, reducing, reusing and recycling
Helping customers to achieve their 5-a-day
packaging wherever we can
Creating the largest EV grocery home
Extending ranges of healthier foods
delivery fleet in the UK
Halving the environmental footprint of
Making healthy foods more affordable
the average shopping basket

1. Average price investment across Plant Chef lines in the Meat, Fish, Poultry and Prepared categories; price matched by pack to a meat equivalent product.
31
I love my Tesco Clubcard.

Personalising Enhancing Increasing our Leveraging

Generating
income
the offer rewards number of dunnhumby
streams
highly valuable
Allow customers Increase the value
customers Create additional Leverage rich data
to choose when, of Clubcard to value from our partnerships with
how and where customers who are digital platform suppliers
they earn and using it most
use the rewards frequently

32
Migrating Clubcard to a digital platform.

Clubcard Improved Regular app users

penetration1 Clubcard
Large perception2 6.6m
stores: 67% 80%
All stores: 56% 70% +
+5%
Personalised
to me
2.5m

Maximises the
+8% value of my
points
August August
2020 Digital Clubcard users 2021

1. YoY Clubcard sales penetration in large stores and all stores (excl. PFS) from P6 2020 to P6 2021.
2. P6 Clubcard Loyalty Sentiment Tracker - YoY. 33
Increasing personalisation and reward.

Coming soon

Over 4.5 million 3x the value now Clubcard Prices now

personalised offers across all partners on services

34
Powered by

Insight gained from >700m consumers

Analysing >18bn data records/week

Partnering with > 70 retailers in 29 markets

Driving joint growth for retail partners and
1,250+ consumer goods companies
including through media activation

35
Reinventing our supplier strategy.
New opportunity to access incremental income
streams
Supporting our economics as we navigate
profound shifts in retail
Competitive advantage created by combination
of Clubcard, online grocery, apps & dunnhumby
with unrivalled physical network
For suppliers:
− New marketing opportunities
− Offering tailored range of products direct to customers
− Improving innovation effectiveness

36
Easily the most convenient.

Unbeatable
Accelerate Improve On- Grow
online efficiency demand convenience
across all
Continue to grow Roll out UFCs
channels Test and learn Strengthen
core online and further from trials of platform through
business productivity new on-demand capital light
improvements services opportunities

37
Accelerating online

H1 21/22 Two-year
Annual online sales already >£6bn
LFL sales +74.1%
Sales growth on top of exceptional Orders/week 1.27m +69.0%
performance last year Basket size £94 +2.9%
% of UK sales 14.6% +5.2% pts
Online market share > traditional
Delivery saver
668k +34%
subscribers
Unrivalled customer proximity
Click & Collect participation now 20%
UFC productivity benefits on track

38
Testing and learning on-demand.
Number of
Number of Launch Delivery Delivery
Proposition products on
stores date platform charge
offer

Tesco App
Within an May
>50 c.1,700 and GHS £5
hour 2021
website

£2-£3
As quick as 20 December
c. 450 c.800 on
mins 2020
average

Varies by Varies by
Booker Varied Varied Varied store and
customer platform

39
 Enhancing our physical network.
Now in
1,941
Express Openings
stores this year

35
Store
conversions
c.100

350+
89 stores

40
Save to invest.

Opportunities
Aim to at A cost c.£1bn
savings
Creating
headroom
efficient
to simplify
least offset to fund
inflation identified investments
retailer

41
Realising cost savings.
Aim to at least offset cost inflation
Significant opportunities to simplify, be
more productive and reduce costs
− More cost-efficient goods not for resale
− Improved productivity
− Optimising our delivery network
− Reducing central overheads

Leveraging Tesco Business Services

Automating processes and routines

c.£1bn savings identified

42
Creating long-term, sustainable value.

Magnetic Save to I love my Easily the

value for invest Tesco most
customers Clubcard convenient

Doing the basics brilliantly Growth through unbeatable digital,

& efficiently convenience & loyalty platforms

43
Multi-year performance framework.

Drive top-line growth, underpinned by:

− Increasing customer satisfaction relative to the market
− Growing or at least maintaining our core UK market share

Grow absolute profits whilst maintaining sector-leading margins through:

− Leveraging our assets efficiently across all channels
− Accessing new revenue streams across our digital platform
− Targeting productivity initiatives to at least offset inflation

In doing so, generate between £1.4bn and £1.8bn retail free cash flow per year

44
Serving our customers,
communities and planet
a little better every day.

45
Summary.
Strong performance to date leading to
increased full-year guidance

Strategic priorities to enhance competitiveness,

accelerate growth and generate cash

A clearer investment proposition, underpinned

by ongoing capital returns

Aim to create sustainable long-term value for

every Tesco stakeholder

Serving our customers, communities and planet

a little better everyday

46
Q&A.
Appendix.
Capital expenditure – H1 21/22.
Capex by Type
£19m £10m
£25m

£122m

£448m £448m
by region by type

£326m

£404m

UK & ROI 3 CE Bank Asset Replacement Returning New Space

49
Debt and liquidity. Debt
maturity
profile

Debt Maturities Sustainability Linked Bond

£bn

Smooth debt maturity profile 1.0

– Less than £1bn maturing in any year

– Weighted average maturity of c.7 years 0.8

Weighted average interest cost of 3.5% 0.5

0.3
Strong liquidity position
– £3.3bn cash1 0.0
– £2.5bn of undrawn committed facilities

1. Cash and cash equivalents plus short term investments less reported overdraft (figure excludes Tesco Bank and discontinued operations).
50
Share buybacks.
Policy to return cash below leverage of 2.8
times Net debt/EBITDA

Currently 2.7 times Net debt/EBITDA, with

confidence in future cash flows

First tranche of £500m of shares to start

imminently

To be repurchased by no later than October

2022; progress update in April 2022

51
Exceptional items – H1 21/22.

On a continuing operations basis H1 21/22 H1 20/21

Litigation costs £(193)m £(93)m

Property transactions £21m £(2)m

Booker integration costs - £(2)m

UK – ATM business rates - £105m

Asia licence fee income £19m -

Net impairment reversal of non-current assets £37m -

Total exceptional items in statutory operating profit £(116)m £8m

52
Disclaimer.
Certain statements made in this document are forward-looking statements. For example, statements regarding
expected revenue growth and operating margins, market trends and our product pipeline are forward-looking
statements. Phrases such as "aim", "plan", "intend", “should”, "anticipate", "well-placed", "believe", "estimate",
"expect", "target", "consider" and similar expressions are generally intended to identify forward-looking statements.
Forward looking statements are based on current expectations and assumptions and are subject to a number of
known and unknown risks, uncertainties and other important factors that could cause actual results or events to
differ materially from what is expressed or implied by those statements. Many factors may cause actual results,
performance or achievements of Tesco to be materially different from any future results, performance or
achievements expressed or implied by the forward looking statements. Important factors that could cause actual
results, performance or achievements of Tesco to differ materially from the expectations of Tesco include, among
other things, general business and economic conditions globally, industry trends, competition, changes in
government and other regulation and policy, including in relation to the environment, health and safety and taxation,
labour relations and work stoppages, interest rates and currency fluctuations, changes in its business strategy,
political and economic uncertainty, including as a result of global pandemics. As such, undue reliance should not be
placed on forward-looking statements. Any forward-looking statement is based on information available to Tesco as
of the date of the statement. All written or oral forward-looking statements attributable to Tesco are qualified by this
caution. Other than in accordance with legal and regulatory obligations, Tesco undertakes no obligation to publicly
update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

53